Treasurer Jim Chalmers’ Challenge: Tell Me What to Cut

Treasurer Jim Chalmers has issued a simple challenge to critics who believe government spending has become excessive: name the programs they would cut.

During a recent media interview, Chalmers declined to nominate a preferred limit for Commonwealth expenditure. He said he was “not prepared to put a specific number on the optimal spending as a share of GDP”.

Instead, he argued that those calling for spending reductions should identify exactly where the savings would come from — implying that finding meaningful cuts is far more difficult than critics suggest.

So, consider the challenge accepted. There are plenty of areas where record government spending could be restrained, helping Australia move away from a budget that repeatedly asks taxpayers to fund more than the country can comfortably afford.

Before getting started, however, there is an important distinction to make. Chalmers is the Treasurer. The responsibility for determining what government should fund does not rest with me, or with anyone else commenting from the sidelines.

He has access to Treasury, the Finance Department and the spending proposals submitted by every minister in government.

Working out what Australia needs, what it can afford and which payments should end is central to the job taxpayers fund him to perform. It is not an extra duty attached only to the title, official vehicle and flag.

Still, if assistance is required, there is no shortage of potential starting points.

Commonwealth spending accounted for 26.9 per cent of GDP in the financial year just completed. Excluding the extraordinary years of the pandemic, that is the highest proportion recorded in four decades.

The easiest examples are a useful place to begin, before turning to the larger and more politically difficult questions.

Why is the federal government paying for local golf-club upgrades? The $6 million pledged to Prime Minister Anthony Albanese’s Marrickville Golf Club would not transform the Budget if it were abandoned. But it offers a revealing response to the Treasurer’s challenge.

There appears to be money available for a prime minister’s local golf course, while identifying genuinely low-priority spending is presented as an almost impossible exercise.

Community clubhouses, cosmetic upgrades and sporting venues should not become national government priorities simply because a politician has found a marginal electorate or a useful backdrop for a media photograph.

Taken together, these forms of political pork-barrelling cost the Budget billions of dollars.

The answer is straightforward: withdraw grants that have not yet been committed and cannot establish a legitimate Commonwealth purpose. Require the remaining proposals to go through open, competitive processes — and substantially reduce the total pool of money available.

The next obvious target is corporate welfare.

The Productivity Commission estimates that industry assistance through the Budget will reach $16.8 billion in 2024/25. That figure includes both tax concessions and direct payments, but it provides a substantial starting point for a Treasurer prepared to scrutinise government support to business.

Which companies are receiving grants for projects they would have pursued without public money? Which businesses depend on a permanent taxpayer subsidy? And which so-called strategic investments are primarily designed to give a minister an opportunity to pose in a hard hat?

A Future Made in Australia – the government’s industry support package – shouldn’t mean invoices paid into perpetuity.

Supporting research, essential capabilities and national resilience can be justified. But every subsidy should come with a convincing explanation of the public benefit and a clearly defined off-ramp for the taxpayer.

We should apply the same discipline to overlapping energy subsidies. Stop stacking Commonwealth assistance on top of state assistance without establishing what additional benefit the extra money buys.

And stop renewing blanket electricity rebates. If households in hardship need help, target them specifically. Sending assistance to people who can comfortably pay their bills already is an expensive way to avoid making a distinction.

This alone would save the budget billions.

The real purpose of the rebates is to temporarily flatter the inflation figures without fixing the underlying cost of electricity. In other words, they’re a tool for political spin.

Chalmers also needs to take a red pen to infrastructure projects that no longer stack up. Cancel weak projects where the remaining benefits don’t justify the remaining costs.

Nor should Canberra automatically help cover every state project’s blowout.

Now for the harder choices.

The NDIS needs relentless scrutiny of inflated provider charges, unnecessary intermediaries, related party transactions and payments for services never delivered.

Necessary disability support is too important to let excessive charges consume the money intended to provide support for the truly needy.

The government has already booked substantial NDIS savings. Now it has to deliver them, publish the results and identify what further reforms can be achieved. Announcing savings is the easy part.

The Treasurer needs to apply similar scrutiny to aged care administration. How much funding disappears into management charges and elaborate corporate arrangements?

Wealthier recipients should also contribute appropriately to accommodation and ordinary living expenses, with hardship provisions protected. Preserving a large inheritance is an inadequate reason to send the bill to taxpayers.

And if Chalmers wants to be really bold, here is a reform with the potential to deliver substantial, lasting savings: include the value of exceptionally expensive homes above a generous threshold in the Age Pension assets test.

Why should someone living in a multi-multi-million dollar property receive taxpayer support on terms that disregard that wealth, while someone with more modest housing and assessable savings misses out?

Protect ordinary homeowners with a generous, indexed threshold. Allow eligible payments to be recovered from estates so people are not forced to sell their homes. It’s an achievable policy change.

The exact savings would depend on the design of course. Treasury can calculate that, but it could run into the many billions of dollars. 

Might it be politically uncomfortable? Certainly. So is asking younger workers struggling with rent and mortgages to subsidise the preservation of substantial estates as the population continues to age.

Childcare subsidies for the highest-income eligible households also deserve closer examination. Tighten the existing means test, while preserving incentives for second earners to work.

The same goes for Medicare, frankly, as long as it kicks in at the right rate. Medicare should also stop funding tests and procedures that independent clinical assessment finds ineffective or unnecessarily duplicated. The Commonwealth should bargain much harder over medicines and encourage clinically appropriate cheaper alternatives.

Next we need to examine Canberra itself. The bureaucracy is far too bloated and yet outsourcing is far too common.

Cut unnecessary management layers, duplicated corporate functions, underused office space and recurring consultancy contracts for the work that departments should be capable of doing themselves.

Measure the combined cost of public servants, contractors and consultants. Sacking an employee and hiring the same expertise back at a higher price is an accounting trick that doesn’t actually reduce spending.

Reduce government advertising that exists primarily to act as a politically partisan message service taxpayers fund. Trim promotional events, unnecessary travel and communications machinery.

These savings won’t balance the budget on their own, but such restraint is culturally important, and the savings run into the hundreds of millions.

Chalmers also needs to close programs that repeatedly fail independent evaluation tests. Give discretionary schemes expiry dates. Receiving funding last year should not confer a hereditary entitlement to receive it next year and the year after that.

Defence services need to adhere to the same discipline. National security is too important to put up with weak procurement, endlessly changing specifications or projects that no longer match strategic priorities.

A larger defence budget makes competent purchasing all the more important. It certainly doesn’t excuse paying whatever appears on the invoice without getting value for money.

And after all of that, do something truly radical: bank the savings rather than spend them on the next election trinket. We see this time and time again.

Cancelling one program to announce another doesn’t reduce the total bill. Nor does identifying a revenue windfall and immediately inventing a reason to spend it.

Some of these measures would save money quickly, others would restrain expenditure over time. Chalmers has entire departments employed to do exactly that. 

If they can’t, you really have to wonder why we have teams of advisers and policy wonks incapable of doing their jobs.

Jim asked where spending could be cut, thinking that doing so might relieve him of the need to do so, because it’s hard to find areas that can take a haircut.

In fact, there are multiple areas that can be cut, with the potential to save tens of billions of dollars over time. Those savings could grow substantially with means testing of Medicare, depending on its design and the effects on the wider health system.

And that’s before we even look at ways to reform the tax system and the federation, to structurally improve the budget.

All we need now is a Treasurer with the guts to do it. If Jim Chalmers won’t, we need to find somebody who will. I nominate Andrew Charlton or Dan Mulino, a pair of Labor MPs with PhDs in economics from Oxford and Yale respectively.